Problem Set 1
Due January 31st (Friday)
Groups up to 4 students
Problem 1 - Handmade frames are produced by a number of identical firms. Total (long-run)
monthly costs for a typical firm are given by: TC(q)=20 q2 + 100q + 8,000, where q is the
number of f
Econ 465
2010/11 W T2
Practice Questions for Bertrand Model
Answers will be posted on the course webpage on Feb 14
Try yourself first before you check answers.
1. Suppose firm 1 and firm 2 each produce the same product and face a
market demand curve descr
Chapter 1
Introduction
1
Famous Antitrust Cases
The breakup of AT&T is a decision that
has made impact on the everyday life of
Americans.
AT&T was granted a natural monopoly
status by the U.S. Government for years.
In 1974, Attorney General Willam Saxbe
f
Suggested Answers to PS #4
1. a. From problem set #3: T ( 40 , 40 ), V ( 52 , 34 ), q l = 30.
3 3
3 3
Since ql > V1 , the entry always happen at the equilibrium regardless of K 1 .
q1 in Subgame A:
K 1 < 20
20,
q1 =
K , 20 K 1 23 .
1
K 1 > 23
23,
- Equi
Suggested Answers to the Sample Final Exam
1. Product dierentiation model
Consumer zo will be indierent between buying a good from rm 1 and rm 2 if
1
20 2(0 zo )2 p1 = 20 2(1 zo )2 p2 or zo = 2 + p2 p1 .
2
Demand of each rm:
D1 (p1 , p2 ) = zo 0 = 1 + p2
Econ 465
2010/11 W T2
Practice Questions of Auctions
Answers will be posted on April 7th.
1. Consider the second-price sealed-bid auction in which the seller announces a reserve
price of R. If no bidder submits a bid greater than R, the seller wont sell t
Concept of utility:
In the previous sections, we represented preference ordering using indifference curves.
For example, if basket A is preferred to basket B then A lies on a higher indifference
curve than B. Now we can also represent preference ordering
Derivation of Market Demand:
This demand is the horizontal sum of quantities demanded by all the consumers in a
given market for each possible price. The locus of these sums is the market demand
curve.
Describing Risk:
A particular action or event may hav
Characterization of Consumer Choice or Equilibrium for Interior Solution:
Slope of the indifference curve = Slope of budget constraint.
C / F = - Pf / PC
- C / F = Pf / PC
or MRSF,C = Pf / PC (for well-behaved indifference curves and for interior solution
Risk Averse:
Suppose the certain income = expected income. Then if U(certain time)>Expected utility
(that is, U(I) > E(U); the person is risk averse. Here, the MU of income diminishes.
Thus, the utility function is concave.
Example on risk averse (same ex
Econ 465
2010/11 W T2
Sample Final Exam
- Answers will be available on the course webpage from April 8th. However, you
should try yourself first.
- You will have 2 hours and 40 minutes. You can get at highest 40.
1. (7 points) There are two firms, firm 1
Suggested Answers to Practice Questions of Auctions
1. a. (i) If vi < R: a bidder i cannot obtain a positive payo in any case. Hence any bid
less than R yields zero payo and it is the best payo in this case. Any bid less than R
practically implies not mak
Static Games and Cournot
Competition
1
Introduction
In the majority of markets firms interact with few
competitors oligopoly market
Each firm has to consider rivals actions
strategic interaction in prices, outputs, advertising
This kind of interaction is
Suggested Answers to PS #3
1. This is the same game we studied in the class. Hence I will give just answers.
a. I will skip a game tree.
SPNE outcome: Player 1 takes $1 at the rst nod to end the game.
b. Player 1: cfw_(take, take all), (take, split), (wai
Suggested Answers to Problem Set #1
1. a. Let p1 , q1 : price and quantity on hot days, p2 , q2 : price and quantity on cool days.
On hot day:
Inverse demand function: P = 150 1 Q.
2
M ax = (150 1 q1 )q1 20q1
2
q1
FOC: 150 q1 20 = 0, or q1 = 130
Hence p1
Suggested Answers to the Sample Midterm Exam
Answers below are very concise. You need to give more details in the exam.
Part I: the rst day
1. a. Single man: 12 2q1 = 2; q1 = 6;
Married man: 12 2q2 = 2; q2 = 5
b and c: Second-degree price discrimination.
Suggested Answers to PS #2
1. Prots are computed for the case in which there is one consumer on each group. The
reservation prices for students, families, hotels, schools, young adults, and pensioners are 20,
20, 20, 20, 17, and 17.
a. Note that (i) Any p
Econ 465
2010/11 W T2
Problem Set #4
Due by April 6th at 4pm in class
You will get 5 points off in every 10 minute. No work will be accepted after 04:50pm.
1. (6 points) Consider the same Dixits model of Q3 of the Problem set #3.
a. (2 points) Find a subg
Econ 465
2010/11 W T2
Problem Set #3
Due by March 25th at 4pm in class
You will get 5 points off in every 10 minute. No work will be accepted after 4:50pm.
1. (6 points) Textbook p. 187, #5; Add b and c.
a. Questions given in the text book (Extensive form
Econ 465
2010/11 W T2
Sample Midterm Exam
Answers will be available on the course webpage from Feb 17th. However, I really
encourage you to solve questions for yourself first.
You wont even recognize your misunderstanding if you just read answers.
Instruc
Engel Curves:
The ICC curves can be used to construct Engel curves.
Definition: An Engel curve is a relationship between quantity of good consumed and
income.
If the Engel curve is upward sloping, F is a normal good. This is the case of the first
graph on
Study guide questions on price function
1. Assume that the market for computers begins in equilibrium. Then, there is a decrease
in a price of Pentium processors used in the production of computers. When the new
equilibrium is reached,
a. the price and qu
Individual Demand:
Price Changes and Consumer Choices: Derivation of PCCf
where PCCf is the Price Consumption Curve for food.
The budget constraint was rotated twice: once rotated inward when P1f increased to P2f
and the second rotated outward when it dec
Introduction to International Finance
Lecture 8: Money, Interest Rates and Exchange
Rates
Prof. Michal Szkup
Introduction
I
We saw how exchange rate between currencies depends
on two factors:
1. interest rate earned on domestic and foreign deposits
2. exp